June's starts were revised to show a 945,000-unit pace instead of the previously reported 893,000-unit rate.

David Paul Morris | Bloomberg | Getty Images

A contractor operates a nail gun while working at the PulteGroup Inc. Sage housing development under construction in San Jose, California.

Economists polled by Reuters had expected starts to rise to a 969,000-unit rate last month.

The housing market is regaining its footing after being slammed by last year's run-up in interest rates. A shortage of properties for sale has also lifted prices, pushing housing out of the reach of many first-time buyers.

Groundbreaking for single-family homes, the largest part of the market, increased 8.3 percent in July to a 656,000-unit pace. Single-family starts in the South rebounded 16.9 percent last month after dropping sharply in June.

Starts for the volatile multi-family homes segment jumped 33 percent to a 423,000-unit rate, the highest level since January 2006. This market segment is being buoyed by a shift towards renting, as many prospective buyers give up on the dream of owning a house.

The government reported last month that the homeownership rate hit a 19-year low in the second quarter, while the rental vacancy rate was the lowest in more than 19 years.

Economists had expected them to rise to a 1.0-million unit pace. Though permits are now slightly lagging starts, a survey on Monday showed confidence among single-family home builders hit a seven-month high in August, which bodes well for groundbreaking in the months ahead.